Obama's Cowardly New World: Kneale

Are we there yet? As the Obama Posse rides headlong into financial reform, hellbent on putting new restraints on Wall Street, we are about to enter a cowardly new world.

CNBC.com

Government Regulation

A world where even the savviest, most sophisticated gamblers don't have to blame themselves when they lose big. Instead, they can call the SEC cops and blame it on the banker who handled the bet.

And where, if you're AIG , you can screw up so badly you need a $180 billion government rescue—and still have the temerity to maybe sue Goldman Sachs for not dotting the i's in a single deal.

It is a world where, after everything collapsed when the housing bubble popped, we get to blame the bankers for loaning us the easy money that let us in on it. And impose new shackles on them for letting us do what we wanted to do.

But perish the thought we would rein in Fannie and Freddie, two government-constructed bubble machines that are busy re-inflating housing all over again.

This is Obama’s World, where government always intrudes en loco parentis to save us from ourselves. Placing blame lets us ignore the real truth of just how scary it was in the bellyflop of late ’08, and how myriad factors combined to cause it.

And so it is that President Obama, relishing his role as populist bully, descended upon New York on Thursday to “castigate Wall Street,” as The Wall Street Journal noted without compunction. Aided and abetted in this bitter endeavor by a liberal lapdog media looking for easy scapegoats, the President even claimed to have predicted the meltdown two years ago.

Which makes you kind of wish his minions, in that case, had been better prepared for what was comin’.

Obama the Bully keeps bashing the big banks. Never mind that most of them have paid back their TARP bailout money (at a profit for the feds), and that the program’s original $700 billion cost now is at less than $90 billion. And never mind that stocks are back up 70 percent or so, in part thanks to Wall Street’s work.

And never mind, too, the galling double standard. Another $50 billion in bailout aid went to a single company, General Motors, which this week trumpets its early payback of $6.7 billion. That smaller sum essentially is the only money GM will ever have to return to the feds.

More than $40 billion in GM bailout cash likely may never be recovered. (The feds own 60% of GM, but its stock would have to hit upwards of $60 to $80 a share just for us to break even. Won’t happen, ever.) Yet President Obama says nary a harsh word about GM.

Actually it’s even more insidious than that: GM has unions and Wall Street doesn’t. The unions helped elect Obama. Wall Street lacks platoons of doorknockers, but it did contribute millions to the campaigns of Bam and the Democrats; it may be the worst bet any trader has made in a long while.

Until this next trade: Dems and Republicans in Congress, in a blatant conflict of interest, have stepped up fundraising among Wall Street firms just as lawmakers put the finishing touches on financial reform. What timing! What utter, naked influence-peddling, by both parties.

This new, blame-the-other-guy world also is evident in the Securities and Exchange Commission’s charging Goldman Sachs with fraud. At issue is a byzantine deal involving a handful of shrewd, swaps-trading titans betting on the rise or fall of the housing market.

Housing collapsed, and this deal and hundreds like it cratered. But the newly paternalistic SEC says the blame belongs solely to Goldman because it failed to formally disclose something that should have been entirely obvious anyway (that Paulson was on the short side of the deal).

We had a historic bubble-burst—and the SEC believes a simple disclosure would have saved the day?

The SEC collected something like seven million pages of documents in investigating Goldman Sachs over the past two years. Goldman did two dozen deals like this one. And in all that, the feds found a couple of suspect e-mails to file charges that even the SEC commissioners themselves couldn’t unanimously agree to support.

Worse, who is getting protected here by this SEC investigation? The bettors in this Goldman vehicle weren’t managing money for teachers and firefighters, they were betting for their own shops. They took the risks—they should have to live with it.

Securities law intentionally separates the savvy from the unsophisticated, granting far more protection to the latter. Now the Obama Posse wants to protect even the wildest, eyes-wide-open gamblers with a thicket of new regulations. And, of course, a never-ending stream of recriminations and insinuations.

How about, instead, a little encouragement? What if President Obama had said something like this yesterday:

“Hey Wall Street, you just paid us billions in extra profits, our retirement funds are getting back up to pre-crisis levels, and business is expanding thanks to your help. So now, let’s work together to figure out what new protections we need.”

The odds on a bully taking up that kind of approach? Since this is Obama we’re talking about, I’d say...skinny chance.